Productivity Cost

Definition

Health Economics

  • A substitute term for indirect cost (or for a part of indirect costs) often chosen so as to avoid confusion with the accountants' usage of 'indirect cost'. A productivity cost is the opportunity cost of an individual's time not spent in productive work activity and it is generally conceived as including valued uses for leisure time. The status of this category of cost has been a matter of controversy, with some arguing that, if the (extra-welfarist) perspective from which a study is being conducted considers health as the only relevant outcome, then costs that do not fall on the health sector ought to be disregarded. It seems more consistent, however, with the extra-welfarist perspective to allow the objective function to include whatever those with appropriate responsibility for deciding such matters want it to include. So the minister of health (say) may require that analyses are to take account both of health consequences and of resources costs falling on the health services, the social services and the personal sector. The conventional welfarist approach would include any effects that directly or indirectly affect individuals' utilities. If a consequence of a particular intervention to improve health actually does increase work productivity then, as a strictly practical matter, this might affect incomes, the demand for health services (and health care insurance) and generate additional resources to produce health care. It would then seem curmudgeonly for any 'minister' to treat such effects as irrelevant and ask analysts to ignore them.

    Most analysts have expressed concern at the potential equity impli cations of including work-related productivity costs, fearing that this might lead to systematic bias in technologies that favours the working population over children, the unemployed and the retired, or the very productive over the not so productive. Of course, any procedure that ruled these costs out of all consideration would then deny decision-makers the opportunity of assessing them and forming a judgment about their significance for distributional equity. That would seem politically presumptuous of analysts.

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